price to sales ratio
PRECISION DRILLING TRUST $6.70 (Toronto symbol PD.UN; Aggressive Growth Portfolio, Resources sector; Units outstanding: 275.6 million; Market cap: $1.8 billion; Price-to-sales ratio: 1.3; SI Rating: Extra Risk) provides contract-drilling services to oil and gas producers. Its clients are located in western Canada, the U.S. and Mexico. The trust owns a fleet of 388 drilling rigs. Precision has been able to avoid cutting its rates to attract new business. That’s because rising oil prices have spurred demand for its drilling rigs. As well, many of Precision’s customers are locking in new contracts now because drilling services may become more expensive in the next year or two. The trust is also building new rigs for specific purposes and types of terrain. Demand for these models is growing strongly, so Precision can charge more for them than for its general-purpose rigs....
PENGROWTH ENERGY TRUST $11 (Toronto symbol PGF.UN; Aggressive Growth Portfolio, Resources sector; Units outstanding: 258.4 million; Market cap: $2.8 billion; Price-to-sales ratio: 1.2; SI Rating: Average) produces oil and natural gas, mainly from properties in western Canada. Natural gas accounts for 60% of its production; oil supplies the remaining 40%. In October, the trust cut its monthly distribution by 30%, to $0.07 a unit from $0.10. The new annual rate of $0.84 yields 7.6%. The lower payout should save Pengrowth roughly $93 million a year. That will help it pay down its $1.4-billion long-term debt, which is equal to 50% of its market cap....
AGRIUM INC. $53 (Toronto symbol AGU; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 157 million; Market cap: $8.3 billion; Price-to-sales ratio: 0.7; SI Rating: Average) makes fertilizers from natural gas at 11 plants in North America and Argentina. The company also makes other fertilizers, such as potash and phosphate, from mines in Alberta, Saskatchewan and Idaho. Agrium sells its products to industrial users and farmers through over 800 stores in the U.S., Argentina and Chile. The company continues to pursue a hostile takeover of U.S.-based fertilizer maker CF Industries Holdings Inc. (New York symbol CF). If successful, this would cost it $4.4 billion U.S. in cash and stock. Adding CF would triple Agrium’s phosphate and urea and ammonium nitrate (UAN) fertilizer-production capacity. The company has extended this offer several times. It now expires on October 22. Despite recent weakness, the long-term outlook for fertilizer is strong. Rising populations will continue to drive demand for food. This should prompt farmers to use more fertilizer to raise their crop yields, and the quality of their products....
POTASH CORP. OF SASKATCHEWAN $96 (Toronto symbol POT; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 295.6 million; Market cap: $28.4 billion; Price-to-sales ratio: 3.6; SI Rating: Average) is the world’s largest fertilizer producer. The company operates six potash mines in Saskatchewan and one in New Brunswick. The reserves of five of these mines should last between 60 and 97 years. The other two mines have minimal or undetermined reserves. The stock hit an all-time high of $246 in June 2008, but fell to $62 last December. The drop was caused by lower prices for crops, which hurt demand for fertilizers like potash. As well, farmers in North America and Australia are seeing better-than-expected crop yields this year, even though they applied less fertilizer. This is mainly because of good weather and large amounts of residual fertilizer in the soil from last year. In an effort to stabilize prices, Potash Corp. will cut its production by 60% this year. Still, global inventories remain high. That’s because many customers stockpiled fertilizers during last year’s boom, in anticipation of continued rising demand. Prices will remain weak until they start using up their inventories....
TELUS CORP. (Toronto symbols T $34 and T.A $32; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 318 million; Market cap: $10.5 billion; Price-to-sales ratio: 1.1; SI Rating: Above Average) is Canada’s second-largest telephone company after BCE Inc. (Toronto symbol BCE). Telus has been expanding its wireless operations over the past few years. As a result, the company now gets 55% of its earnings from its 6.3 million wireless subscribers across Canada. Telus has 37% of the wireless market. Market leader Rogers Communications Inc. (Toronto symbol RCI.B) has 48%. The remaining 45% of Telus’s earnings comes from its traditional phone business, which has 4.1 million...
Three new wireless providers (Globalive, DAVE Wireless and Public Mobile) will probably enter the Canadian market next year. This will undoubtedly put pressure on Canada’s three existing wireless carriers, including Telus. However, Telus has dealt with strong competition from wireless and cable companies for years. For example, last year it launched Koodo, a new discount cellphone service, to attract younger users. The company has also upgraded its networks to handle a wider variety of cellphones, including Apple’s hugely popular iPhone. New TV services should also help Telus hang on to many of its traditional phone and wireless customers. Moreover, Telus’s high dividend yield should attract more investors as income trusts convert to corporations, or cut their distributions once Ottawa starts taxing them in 2011....
TRANSALTA CORP. $22 (Toronto symbol TA; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 197.9 million; Market cap: $4.4 billion; Price-to-sales ratio: 1.5; SI Rating: Average) will pay roughly $755 million for Canadian Hydro Developers Inc. (Toronto symbol KHD), which owns and operates 21 power-generating facilities in Alberta, B.C., Ontario and Quebec. These include 12 hydroelectric plants, eight wind farms and one biomass plant, which generates power by burning plant materials and wood waste from lumber mills. TransAlta will also assume Canadian Hydro’s debt of $845 million. Adding Canadian Hydro will increase TransAlta’s generating capacity by 9%, to 8,657 megawatts. Moreover, about 22% of that total would come from renewable sources, compared to 15% today. TransAlta uses coal to generate 60% of its electricity, so increasing its renewable-energy capacity will help it comply with the tougher environmental regulations that will likely come into force over the next few years....
These four resource stocks are more risky than, say, Imperial Oil or EnCana. Still, we feel that their large reserves and low-cost operations put them in a good position to take advantage of rising demand for commodities as the global economy recovers. However, only three are buys right now. POTASH CORP. OF SASKATCHEWAN $96 (Toronto symbol POT; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 295.6 million; Market cap: $28.4 billion; Price-to-sales ratio: 3.6; SI Rating: Average) is the world’s largest fertilizer producer. The company operates six potash mines in Saskatchewan and one in New Brunswick. The reserves of five of these mines should last between 60 and 97 years. The other two mines have minimal or undetermined reserves. The stock hit an all-time high of $246 in June 2008, but fell to $62 last December. The drop was caused by lower prices for crops, which hurt demand for fertilizers like potash. As well, farmers in North America and Australia are seeing better-than-expected crop yields this year, even though they applied less fertilizer. This is mainly because of good weather and large amounts of residual fertilizer in the soil from last year....
TECK RESOURCES LTD. $30 (Toronto symbol TCK.B; Conservative Growth Portfolio, Resources sector; Shares outstanding: 487.1 million; Market cap: $14.6 billion; Price-to-sales ratio: 1.9; SI Rating: Extra Risk) has agreed to sell two of its gold mines in Turkey to Alamos Gold Inc. (Toronto symbol AGI). Teck owns 60% of these mines; Fronteer Development Group Inc. (Toronto symbol FRG) owns the other 40%. Alamos will pay $40 million U.S., plus four million of its shares to Teck and Fronteer. Teck’s share of the cash is $24 million U.S. It will also get $21.9 million worth of Alamos shares, using the current share price. Teck will apply the cash to its $9-billion debt. Teck Resources is a buy.
SUNCOR ENERGY INC. $37 (Toronto symbol SU; Conservative Growth Portfolio, Resources sector; Shares outstanding: 1.6 billion; Market cap: $59.2 billion; Price-to-sales ratio: 1.1; SI Rating: Average) plans to double ethanol production at its plant in Sarnia, Ontario. Ethanol, which is made from corn, is a gasoline additive that cuts harmful emissions. Increasing ethanol production will help Suncor comply with proposed new environmental regulations. This project should be completed by the end of 2010, and will cost $120 million. To put this in context, Suncor earned $185 million, or $0.20 a share, in the second quarter of 2009 (excluding unusual items and last August’s merger with Petro-Canada). Suncor is a buy.